THE PATH OF A RETAIL TRADER. Your Guide to Trading Success.

Transcription

1 THE PATH OF A RETAIL TRADER Your Guide to Trading Success

2 Contents Introduction 3 Belief 4 Starting Out 5 Finally, Progress! 8 A Better Way to Learn 10 The Traders Learning Guide 11 Stage 1 Expectations 12 Stage 2 Self-Assessment Phase 14 Stage 3 Initial Learning Phase Begin to experiment with edges 15 Stage 4 Professional Coaching and Trading Proven Edges 17 Stage 5 Psychology 18 Stage 6 Confidence is the Holy Grail in Trading 21 Conclusion 23 2

3 Introduction The Path of a Retail Trader My perspective on learning to trade will be much different from a trader with a Master s Degree in finance, who went to work for a hedge fund right out of college. It will be different from someone who learned from another trader while clerking on the trading floor in Chicago. Please don t misread this. Many of those traders have shared information that has made it possible for others to succeed. I ve learned a lot from these traders and I am forever grateful for their help. I m just saying that their path to learning was different from mine and maybe yours. My introduction to trading came later in life. It became a quest. It took much longer and was much more difficult and expensive than I could ve imagined. If you re trying to learn trading on your own; that is, with no guidance except trial and error, I m writing this for you. I ll cover the winding path that many of us retail traders take in learning how to trade. Next, I ll show how I believe you can expedite the learning process and avoid many of the pitfalls. I ll outline a learning plan that I wish I had when I started trading. I believe this plan will help you succeed as quickly and inexpensively as possible. I ll share what you should learn, and the most effective way in which to learn it. I ll cover how to avoid blowing up your account and how you can develop a good trading foundation for free. We ll also discuss how and when to find a mentor whom can help you reach another level in your trading. I ll describe how you can begin to build a mindset that is necessary in successful trading. Finally, I ll explain why I believe the true Holy Grail in trading is confidence. Then, I ll discuss how to acquire it. I sincerely hope this helps you identify where you are in your trading journey and puts you on track for great trading success. 3

4 There is a phrase used over and over by Charles Morse, a character played by Anthony Hopkins in the movie The Edge. The quote is: What one man can do, another can do. I believe in this statement. Is there only one successful trader? Of course not, there are many. I believed at the outset that if they can do it, then I can too; therefore, so can you. It may take me longer than some. My returns may not be as big as others. I may have to work harder than people who are smarter than me. But, in the end, this is a skill that can be learned. With enough desire, hard work, practice, time and commitment to getting better I believe I can be as good as any trader out there. You have to believe you can do it before you even start. Trust me, there will be times when that belief will be tested. There were days when I would ask myself, Will I ever get this or am I just wasting my time and money? The answer for me was always, Of course I can do this. There s something missing, and I just need to find out what it is. I ve heard successful retail traders say it took them two years to become consistently profitable. Others worked at it for ten years before they could trade for a living. The majority of them are somewhere in the middle. I can tell you, with certainty, that they were all tested at some point along the way. Yet, they maintained their belief in themselves and persevered. Belief John Carter, one of my trading mentors, said it took him eight years before he could trade full-time. He once reduced his $150,000 account to around $8,000 on one trade over the course of a few days. Did he give up? No. He s now a well-known options trader who has been featured on CNBC, CME Group, Bloomberg and Fox Business. He has advised multi billionaire Sir Richard Branson on crude oil speculation and authored the book, Mastering the Trade. I ll bet he s glad that he didn t give up early in his career when he blew up his account. 4

5 It seems simple when we decide we want to learn how to trade. If I could just find a setup to buy when the price is going up, and sell before it goes down, then I could be a professional trader. We assume that all we have to do is buy low and sell high. We should be able to figure out how to do that pretty quickly, right? Maybe the big boys have a secret they are hiding from the public. If we just find out what that secret is, then we ll be able to take money out of the markets at will. At least this is what I thought when I started. Oh, if only it was that simple. We quickly, or maybe not so quickly, figure out there is a lot more to it than that. We wander around learning about indicators and strategies. Each time we have a couple of wins we think, This is it! I ve figured it out! Then, we lose more money and go back to the drawing board. We watch YouTube videos of traders taking thousands of dollars per day out of the markets using their proprietary buy/sell signals with green and red arrows. And you, too, can use these signals to make millions for ONLY $999. Some of us buy the signal system, take several losses and realize it doesn t work. Later, we get an from the green and red arrow guy stating that the markets have changed. They now have a revised system that can t lose in current market conditions. You are already a customer so you can get it for only $249 if you act now! If you haven t fallen victim to these scams, please don t. Remember, you are trying to be a professional. I doubt that Ed Seykota, Paul Tudor Jones, Marty Schwartz or Mike Bellafiore ever bought red and green signals for $999. Many vendors sell Trading Secrets Professional Traders Don t Want You to Know! Starting Out There are no secrets they re hiding from you. The banks and hedge funds do try to camouflage when they are in accumulation or distribution mode. They aren t going to share their HFT algorithms with you but hey, why should they? They've spent millions developing them. Most professional retail traders however, are happy to share their knowledge with aspiring traders. Besides, even if you had their trade plan, you would likely fail with it. Want to know why? We ll get to that We read every trading book on which we can get our hands. We learn about candlesticks, chart patterns with wedges, flags and a myriad of other stuff. We read about risk management, money management, and thinking in probabilities. We hear the clichés like, Cut your losers and let your winners run. But nothing seems to work. We pile more indicators on our charts and begin drawing support, resistance lines and channels. Why not try Fibonacci retracements and extensions? Maybe we even join a penny stock discussion board where everyone says they re killing it in the market. We re all over the place and still losing money. We begin to think, This whole trading thing is a scam. No one is making money except the big banks and system sellers who are taking advantage of new wannabe traders. We begin to wonder if trading for a living is even possible? At this point, our journey has taken a couple of years. We have blown up a trading account or two; we still don t have a clue about what we really need to learn to be successful. We decide to stick with it after taking a break. We do some more learning and fund another trading account. Now we re going to get serious. 5

6 We ve heard the word discipline enough by now to know that we need to stick to a strategy. However, we still don t have a strategy. Here we go again, looking for an edge to get us in and out of the market. We buy a course and lose money trying to trade it. We join a trade room with a coach. Others in the trade room, and the coach, are consistently posting up winners. Yet, we continue to lose. This can go on and on for years until one of the following happens. 1 2 We completely run out of money and are forced to give up. We become so frustrated that we say, I guess I m just not cut out to be a trader. Or 4 3 We conclude that money cannot be made as a retail trader and everyone claiming otherwise is lying We finally figure out that we re not making money because there is still something missing. We become determined to find it. We keep going. 6

7 We begin looking for the missing piece, which usually leads us to psychology. This has everything to do with what separates the successful from the failures. To expand on this First of all, trying to trade a methodology that doesn t fit our personality will be extremely difficult. We need to trade edges that fit us. We need edges with risk parameters that we can comfortably accept psychologically. We need to trade within a time frame that fits our analytical and decision making personality. For example, if you are someone who likes to analyze and give deliberate thought to all of the possible outcomes of a decision before making it, it will be very difficult for you to survive as a scalper or even a day trader. You may, however, be an awesome swing trader, trend follower or fundamental investor. Play to your strengths. I m more active and impatient by nature. My personality led me to intraday trading with a lean toward scalping. I look for momentum so I can get in and out of the market quickly. If there is strong momentum, then I can use tighter stops, which satisfies my risk averseness. I have a friend who started trading at the same time I did. We traded and learned together for the first couple of years. Eventually we drifted apart in our trading styles. He can shrug off large pullbacks and stay in a trade forever. He is much better than me at holding trades longer in anticipation of the larger move. He s a very good swing and trend trader. I can t trade his methodology and he can t trade mine. We each had to find our own style and build edges that fit our respective personalities. Further, maybe you can t handle big risk. The thought of holding positions and having risk in the markets overnight freaks you out. You make good decisions quickly and perform well under pressure. Maybe you re impatient, and take trades out of boredom because you feel the need to be active. If you ve been trying to swing trade or trend-follow, then it probably hasn t gone well. Your personality is telling you that you would be better suited to a trading style that is faster paced with smaller risk like scalping or trading intraday. Again: play to your strengths. I tried trend following early on. It was very difficult for me. I was bored to the point of insanity and jumping out of trades early so I could get into another trade. The longer I was in a trade, the more I began to question and doubt my reasons for being in it. Every small retracement appeared to be a reversal to me. It would cause me to panic and close the trade. I m risk averse and struggle psychologically with using wide stops. 7

8 Finally, Progress! We can begin to develop a strategy that fits us once we figure out our personality. If we ve determined that swing trading is the best fit for us, then we can find a professional mentor who specializes in swing trading. Our mentor can talk us through his or her thought process when trading and show us a methodology with proven edges to trade. We begin to improve at this point. Now much of the stuff we learned and discarded during those painful years is starting to make sense. We can see the patterns on the charts starting to stand out. We re now applying risk that is psychologically acceptable for us, not someone else. We understand the importance of money management. We re beginning to think in probabilities while protecting our capital. Taking those small losses doesn t frustrate us anymore. We know this is just part of our strategy and the winners will come if we continue employing our strategy. Trading within our personality and exploiting our strengths becomes easier. We develop trust in ourselves to follow our plan. We begin to be patient in our trading. While reading Reminiscences of a Stock Operator for the fourth time, the phrase It never was my thinking that made the big money for me, it was my sitting suddenly makes perfect sense. We realize many of the trading clichés that we blew off are true, if used in context. For example, Cut your losses and let your winners run is sound advice for a trend trader, but not so much for a scalper. It s amazing that, at a certain point, things like this begin to become clearer. That s the evolution of your mind into thinking like a trader. Side note: The first trading book I ever bought was Trading In the Zone by Mark Douglas. I wasn t ready for it. I kept thinking, Why does he keep talking about a kid getting bit by a dog? and Where are the setups? I ve read that book many times over the years. I ve learned more valuable information about myself as well as trading from that book than from almost any other. Now I know that Mr. Douglas had profound insight into the trading mind. In the beginning, I was looking for the wrong information. I began asking the right questions and it became clearer as my thinking evolved. We begin to see ways to tweak, or slightly modify our strategy further, in order to incorporate our knowledge and fit our personality. We may learn strategies from a mentor, and even become profitable; but at some point, we will likely begin to make adjustments because we all see things from different perspectives. Ed Seykota taught a lot of people how to trade, but I ve never heard a professional trader say: Yeah, I trade the Ed Seykota system. Not once. He taught them a foundation and they made it fit them. I doubt that Michael Marcus and David Druz trade the exact same way, and yet they both worked with Ed Seykota. SMB Capital teaches the same edges to new professional Prop traders and encourages them to identify the ones that make sense to them and adjust them to play to their strengths. Eventually, with a good foundation, we ll find our own way based on our individual personalities and perspectives. 8

9 How do we get from I want to be a trader to I am a trader? How do we get the foundation? It took me six years and losing $50,000 to learn the fundamentals and get a good foundation. Only then could I finally begin to develop edges that I could trust. Many of them are based on setups I ve learned from various courses and coaches but I ve modified them so they are unique to my personality. I couldn t trade them consistently without these modifications. This was when I really began to really grow as a trader. The catch is that I couldn t grow without first having the solid foundation. I didn t have a plan when I started, nor did I know what the fundamentals of good trading were. I don t think it would ve taken nearly as long or cost nearly as much if I d had a plan. I didn t know what I needed to learn, so ultimately I spent a lot of time and money learning the wrong things. 9

10 A Better Way to Learn I ve created the following simple, yet powerful guide, to help you get on track and keep you there. This is what I wish someone had given me when I started. It s going to take work and patience, but it is designed to get you there as quickly and inexpensively as possible. This is not a trading plan. It s a learning plan. This plan has been broken down into stages. This helps you measure your progress and identify where you are and where to go next as you learn. 10

11 The Traders Learning Guide This guide is designed to work in conjunction with the resources at TradersInfoHub.com 11

12 Stage 1 Expectations In my humble opinion, the very first thing a trader should do is to develop realistic expectations. It took me awhile to get this. Initially, I thought I was going to turn $10,000 into millions within a few years. Having realistic expectations will help you with money management, risk management and trade management later on. Having unrealistic expectations will make everything more difficult. For example: It s hard to risk one or two percent of your account on a trade when you re expectation is to double your account every month. It s hard to close a trade where you should for $100 profit when you need to make $20,000 this month to be on track to hit your $200,000 annual goal. Some people in the Trader Education space reinforce unrealistic expectations by telling new traders that trading is easy. You can trade for a living, or even make millions, if you just pay them for their strategies, indicators, alerts or training. They ll tell you about Richard Dennis who turned $1600 into $200M. They will tell you whatever you want to hear in an effort to separate you from your money. When you fail with their strategy, and lose all of your money, they then go looking for the next sucker to buy their magical system. They re trying very hard to get your money before the market does, because they know that 95% of traders fail in trading. 12

13 The Path of a Retail Trader I don t mean to sound bitter about people who offer systems or trading strategies. I m just trying to get the point across that there is no Holy Grail setup or system out there. The sooner you stop looking for it, then the sooner you can start learning how to trade. Some very good traders are genuine and offer great training and strategies that work. Unfortunately, there are more get rich quick scammers than good, professional trading coaches. Even if traders are lucky enough to learn edges from a good mentor, not everyone will have the psychological discipline to trade them. How well they do will depend heavily on their individual personality types. It s important to understand trading is a skill that must be developed. It takes work, preparation, persistence, desire, thought, introspection, will and a constant effort to improve. However, it is definitely a skill that can be learned. You will save yourself a lot of frustration and wasted time when you realize there is no magic setup and stop looking for it. Trading is much like other professions. Yet, I ve never seen anyone marketing to surgeons a magic proprietary scalpel and course on performing appendectomies. Buy our scalpel and course TRADERS INFO HUB. All Rights Reserved Start performing successful appendectomies NOW! How about a magic bat and glove that enables a baseball player to hit it out of the park on 90% of swings and catch everything hit at him? Buy this bat and glove and you ll be playing in the Majors in six months. These are professions that take years of study, hard work and practice. Trading is no different. Do professional golfers have magic golf clubs? Nope. They have clubs cut to fit their individual swings, stance and height. I have custom clubs and barely get below 80 on a good day. So, why are they professionals and I m not? They have decades of practice and repetition. Most of them practice under the watchful eye of a professional coach. They ve developed the psychological discipline to stay focused in highpressure situations. They have confidence, love for the game and desire to constantly improve. Wow! That sounds like trading. Check out some of the videos in the Expectations in Trading section of TradersInfoHub and see if your current expectations are realistic. 13

14 Stage 2 Self-Assessment Phase Figure out what trading style fits your personality. You can start with the Learn to Trade link at Traders Info Hub. Here you can go to Trading Styles to start learning about the different styles and holding times. Next, take the Trader Personality Tests. Watch videos on the various styles in the trading videos section. Go to our favorite YouTube Trading Channels in the Trader Resource section and do some research. Now you can begin to figure out what market you ll trade based on your account size, risk tolerance etc. in the Markets section. What you re trying to figure out in this stage is what you will start trading and the time frame in which you will trade. You ll develop a specific personalized style and trading edges as you go. It s a natural evolution. For example, you may determine that you will trade stocks on an intraday basis. Later, you will narrow your field to which stocks you will trade. There are many, many ways to identify edges for entering and exiting trades. If you take 100 intraday traders, they may all trade differently. Ultimately, your trading edge may be completely different from everyone else because your personality and perspectives are unique to you. You may not get this right the first time. It will likely take experimentation with trading different time frames, styles and markets. Every successful traders number one focus is on risk management, regardless of trading style or market. You can t survive without it. I wish someone had drilled that into my head before I blew up my first or second trading account. Once you believe you know your trading timeframe, go to step three and find out if you are right in your self-assessment. 14

15 Stage 3 Initial Learning Phase Begin to experiment with edges Learn some basic technical analysis and common setups for free. You will find several Free Trading Courses in the Traders Resource section. Try to find a course in a time frame that you ve determined closely fits your personality, whether that s day trading or swing trading, etc. Don t discount the value of free information. I use some edges that I learned years ago from free courses. I had to modify them to fit my psychology. I considered a pullback setup I learned, for instance, a waste of time until I learned not to use it in choppy markets and began using order flow to pinpoint my entries so I could use tighter stops. Now it s my favorite edge for trading strong trending markets. Don t trade 20 futures contracts on demo if you plan to trade one contract when you open your live account. Keep in mind that you re not trying to take on Wall Street yet. It may seem counterintuitive, but making money is not the real objective in this stage. You re only trying to find out what style or timeframe is the most comfortable for you. Are you able to stick to the rules you ve written down? You may have to try several different things before something feels right. There will likely be some discomfort regardless of the style. Find the one that causes you least amount and try to master it. Be prepared to spend some time here. I think it s important to experiment with different styles and setups to eventually gravitate toward edges that fit you. You will want to know as much as possible Study your courses and find a broker and before moving on to a trading coach. If you skip platform that will let you set up a demo this step, and go directly to a coach, then you account in the Brokers and Platforms section will probably be overwhelmed until you learn under Trader Resources. Write down the rules trading terminology, order types, the market and create a trade plan based on what you re you re trading, etc. learning. You can find help on creating a trade plan in the Traders Resource section. Log and Here s an example to illustrate my point: track your trades so you know how you re performing. Write down if each trade Imagine it s a new trader s first week in trading. followed the plan or you re getting off course He or she signed up with a mentor who is (see Trade Journals in the Traders resource training a room full of traders in trading with section). Additionally, you can listen to order flow. Some of the students have been interviews with successful traders in the training with the coach for months or even years. Trading Podcasts section and watch the trading The coach starts explaining why, when price and psychology videos. Once you become pushed up into and got rejected he hit proficient with your platform, understand your the bid and got slipped a little. He was filled at rules and can follow them, consider trading 47 (meaning 63.47). He would stop out at 51, it with a small live account. leaning on the big seller sitting on the offer at 50. He was looking for the bids to start pulling. I think demo trading is great for getting He was prepared to hit out on a test of 35 if familiar with a new platform. Demo trading, for buyers came in, which was a level of interest. me, has a much different emotional feel than Price stalled at the level, so he covered half at live trading. Trading with real money initially 36. The offers were stacking on the ladder, so amplified my emotions. If you re demo trading, he stayed short on the second half and got the trade like it s your live account. break of 35. He limited out at 28 and was flat. 15

16 A brand new trader would probably be lost and start to think this is too complicated. They would begin to doubt whether or not they can learn all of this. However, if the new trader spent a little time going through a free course on order flow in the Free Courses section of TradersInfoHub.com, and watched videos on order flow prior to signing up with the coach, then much of this would make perfect sense. Once you think you ve found your style and you can stick to a set of rules, then you are ready to move to stage four. 16

17 Stage 4 Professional Coaching and Trading Proven Edges Get a coach! You can expect to pay tuition while learning to trade no matter how you go about it. It s vital that you learn something for that money. Losing it in the markets, and trying to figure it out on your own, is probably the slowest and most expensive way to learn. You will be way ahead in time and money if you pay for a quality trading education with a qualified professional trading coach. In fact, if you have the money and time, it would be wise to choose a mentor whom offers one-on-one training online or, better yet, in-house mentoring. Develop your trade plan based on the strategy your coach is teaching you. Do your best to stick to the plan. If your coach doesn t provide a sample trade plan, then you can find a sample trade plan in the Traders Resource section. You should have all of the answers to build a plan yourself based on what you ve learned so far. Practice, practice and practice some more. Log your trades and journal. If you simply cannot stick to the plan no matter how hard you try, then it s time to incorporate stage five. Go to the Trading Coaches section and choose a proven mentor who trains in a methodology that is as close as possible to that with which you ve become most comfortable. If you ve been trading Emini S&P Futures (ES) intraday on demo or with a small account, and you re getting comfortable with it, then you should choose an intraday trading coach who trades the (ES). The coaches listed at TradersInfoHub.com are trading experts. So, be open-minded and learn from them. Use the same trading platform they use. If they recommend a broker, consider it. If they re teaching price action trading with no indicators on the Emini S&P, don t throw Ichimoku Clouds, Market Profile and 12 different moving averages on your chart and try to trade Crude Oil with their edges. (Yeah, I did that.) However, you can test things after you become consistently profitable to see if it helps your P&L. You have a lot of freedom to customize your trading once you re profitable, or at least breaking even, and aren t sabotaging yourself. 17

18 Stage 5 Psychology If you are missing trades, jumping out of trades early, chasing trades, taking trades outside of the plan, over leveraging or experiencing any other self destructive behavior you need to correct it. If you re losing money doing these things, then STOP TRADING; or, at least reduce your size to minimize the damage. You can work with one of the professional trading psychologists in the Traders Psychology section. You may find the issues are easy to work through and you go on to adjust your trading plan to better fit you and have a long career as a profitable retail trader. Another possibility is that you discover you were wrong in your self-assessment and a different trading style would better suit you. If the latter is the case, don t get mad or feel bad about being wrong in your assessment. As a trader, you ll get used to being wrong a lot. Simply determine what style you should be trading through ongoing self-assessment or with the help of your trading psychologist. Go back to step three or four. Repeat steps three through five until you get profitable. How long that takes will be up to you and your ability to think in probabilities like a professional trader and stick to your plan. 18

19 Psychology Examples Here are a couple of examples of how psychology played a big part in my trading that may help you. Challenge: I had a big problem with overtrading. I came into trading with a blue-collar worker mentality. The more work you do then the more money you make, right? Nope. Not in the act of trading. I was overtrading and felt I needed to be in a trade all of the time to make money. This led to taking mediocre trades just to get in. I was taking a lot of losses and getting eaten alive by commissions. Solution: I now use my work ethic to my advantage by putting all of that hard work into preparation, review and working to get better. I feel good about patiently waiting for my best edges because I ve done all of the necessary work in advance. Rather than changing my belief about working hard, I just channeled it to a more productive area where it is needed. I constantly work to improve my trading. I challenge myself to step out of my comfort zone. I m trying to get comfortable with being uncomfortable to get to the next level. I try to add more size to the point is uncomfortable when my strategy says I should. I try to hold positions longer and longer when the market is trending strongly. I dig into my metrics while finding areas where I can make minor improvements. I test tightening my stops, based on my MAE average, and make my losers smaller. I test increasing my targets, based on my MFE, to get a little more profit, on average, from my winners. Maybe I can figure out how to improve or eliminate one of my underperforming edges. I back test, utilizing filters to see if they may help me stay out of the market when my strategy underperforms. Maybe they ll tell me when conditions are ideal and I should be adding more size to exploit favorable conditions. These are the areas where I focus my energy now, rather than the act of putting on trades. My worker bee psychology is now satisfied because it gets to put in the work for the money. The more work I do in preparation and improvement the better my results are. It s strange how that confirms my original belief that, more work equals more money. I was just working in the wrong area before. 19

20 Challenge: Revenge Trading I m very competitive. I hate to lose. When I would take a few losses I would, without thinking, jump into the next thing I saw that closely resembled an edge with bigger size. I was trying to get back at the market for taking my money. This would usually result in another loss and then another and a spiral would occur. I once turned my most profitable trading day, to that point, into a day where I lost nearly 25% of my account. Afterwards I was asking myself, Why did I do that? What was I thinking? I m not proud of this incident and, in fact, it s a little embarrassing. Yet, if you ve done something similar, then this should show that you re not alone. You can bounce back and overcome it. Solution: I stopped looking at a trading session like a timed competition where the clock is ticking. I began to look at it more strategically. I made it my number one focus to protect the bulk of my capital. We will always have to put money at risk in order to profit, but we can decide how much to risk, when and under what conditions. I realized that I could wait for the highest probability opportunities and generally recover relatively quickly from a string of small losers. I really began to get this under control when I started journaling and tracking my trades. I open my journal each day and write at the top of the page, Protect my capital. I could now review my trades when I began journaling. I looked at my statistics and created rules to protect my capital. In addition, when I journal my trades, I would have to look away from the screens to write. This helped me reset my brain between trades and avoid going on tilt. I can still sense a little frustration at times when things aren t going my way. I know what that can lead to and have developed rules to avoid stupid behavior. If I take three losses in a row, it is telling me something may not be right. Maybe the market isn t right for my strategy today. Maybe I m distracted or tired. I ll reevaluate market conditions at this point. Did I rush my preparation? Am I reading the market as a trend when it s really a big trading range? Do I need to trade it like a range? If it s too confusing I stop trading until it becomes clear. I also look at whether those three trades were all placed properly in accordance with my plan. Were they my best edges, or were they setups that have lower probability? Then, I make a decision on how to move forward. Sometimes I ll cut my position size in half until I get back in sync with the market. Other times I ll decide to call it a day and come back when I m seeing the price action more clearly and can take advantage of it. It is based on the key mission of protecting my capital, no matter what the decision. The strategy is to play defense until I see an opening where I can go on full offense with high probability of winning. That s how I choose to recover from a drawdown. If you are experiencing these psychological issues or others visit the Traders Psychology section of TradersInfoHub.com and start working to correct them. 20

21 Stage 6 Confidence is the Holy Grail in Trading I ve heard people say, I need to start making money so I can become confident. For me it didn t work like that. I became more confident and consistent as I began to trust myself. Money really had nothing to do with it. A good trader can have a losing day, week or even month and still remain completely confident. Early on I had very profitable days and weeks, but I wasn t confident. This was because, down deep, I knew I had gotten lucky and I didn t really have a strategy I trusted. Additionally, I couldn t trust myself to consistently do the right thing. Eventually you will begin gaining confidence, with enough meaningful practice at doing the right things. Confidence comes from simply being able to trust yourself. Trust yourself to take advantage of your edges when the market presents them. Trust that you will not jump into a trade that doesn t fit your entry criteria. Trust yourself not go off the rails revenge trading because you took a couple of losses. Trust that you can identify when the market is not right for your strategy and have the good sense to turn off your computer. How about trusting yourself to not move your stop, or having the patience to sit on your hands waiting for your target to get hit without jumping out early? I heard a reporter ask a professional NFL quarterback if he was nervous or lacked confidence before an upcoming big game. He said, Nervousness and lack of confidence are experienced by people who don t know what they re doing or haven t prepared. Or, maybe they have prepared but don t trust themselves to follow their plan. I m prepared and I am confident that I ll follow the plan. That s all I can do. Why worry about things I can t control? Why be nervous? Once you develop this level of confidence in yourself, and your plan, you will become a professional. Trading is so much more effortless when you can trust yourself to follow your plan. I began to develop trust in myself when I started setting small challenges and sticking to them. As I said earlier, I had a problem with overtrading. I felt like I needed to be in a trade all the time. One day, after a marathon trading session in which I placed 93 trades and broke even on the day, I set a goal for the next day. The goal was to simply watch the market and not trade. The next day, I was committed to only watch the market and not take a trade. The longer I watched and did nothing, the more resolve I had and the easier it became to do nothing. Ultimately, the market just chopped around all day. It was false breakout after false breakout. I thought about if I had been jumping in and out all day; it would have been a disaster. I was proud of the fact that I set a rule and stuck to it; ultimately, I protected my capital. Doing this occasionally helped me change the way I viewed trading. I learned that I don t have to be in a trade all of time to make money. More opportunities will come. Now I can wait patiently for the best conditions and try to take advantage of them when they appear. Another challenge I got from a former trading coach was that before the session started, I would set a time that I would close any positions and turn off my computer no matter what was happening. That was usually one hour or ninety minutes after the open. The market would open and, regardless of what was happening, I would flatten my positions one hour after the open. I would turn off the computer and go do something else. 21

22 Some days were difficult, especially if the market was moving but I stuck to it. When I returned, even if I missed a big move, I realized the world didn t end because I missed a trade. I could trust myself to set a rule and follow it. There is always another trading session. People may think this is a dumb idea. Why would anyone walk away from a trading day that is producing? The idea is to look at the bigger picture. It s not about making money on a particular day. It s about building discipline and trust in myself for the long term to make money over months, years and decades. In life there are rules we must follow. We have police, teachers, coaches, bosses and parents who enforce them. You make up the rules in trading; you are the only one who can enforce them. If you re not going to enforce them, then you may as well not have them. If you don t have any rules in your trading, then you re just gambling and failure is eminent. You have to own your decisions and be okay with the result. You will miss moves, leave money on the table and take strings of losses etc. You will need to accept this, stick to your rules and avoid changing your plan based on these occurrences. Little things like this helped me build trust in myself to follow rules I set. From there it branched out to strictly following my other rules like entry, exit, risk, stops, max drawdown, etc. After all, if you can t trust yourself to turn off a computer when you say you will, then how will you trust yourself to stop trading when you hit your max drawdown and avoid blowing up your account? 22

23 Conclusion I m not a Market Wizard. I didn t post my experiences here to say, Hey, look at me! There are traders with much more experience and better results than me. My intention is to make this all about you and how I may be able to share information to help you become successful. I included this information to illustrate a couple of points. First of all, if I can go from a horrible trader who blew up accounts, made every mistake possible, failed for six years and overcame psychological obstacles to becoming a confident and disciplined trader, then so can you. Secondly, maybe some of my experiences are similar to yours and the solutions that helped me will help you. If you really have a desire to be a trader, just being consistently profitable should be a milestone but it shouldn t be the end goal. Just because you re posting up good results on a regular basis doesn t mean the game is over and you ve won. If you honestly have the desire to make trading your career, you must keep getting better, keep playing to your strengths and working on your weaknesses. If you re confident and profitable this month, Congratulations! Pat yourself on the back and go to work on becoming more confident and more profitable next month? I sincerely hope this guide along with all of the resources at TradersInfoHub.com help you find your way to success in trading. 23